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Investec asset management

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Investec asset management

  1. 1. Is the commodity supercycle still alive?Citywire Wealth Manager Retreat, 17 - 19 October 2012George Cheveley - Portfolio Manager, Commodities & Resources
  2. 2. Target audienceThis document is only for professional investors, professional financial advisors and, attheir exclusive discretion, their clients. No other person should rely on the informationcontained in this document.If you plan to show this to your clients, please ensure that you comply with any applicablelocal marketing regulations.This document is not to be generally distributed to the public.Page 2 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  3. 3. Global specialist asset managerInvestec Asset Management● Founded in 1991 by current leadership● Independently managed entity within Investec Group● Origins are African – presence and perspective is global● Investment and Operational hubs in London & Cape Town● Client group teams in Africa, Americas, Asia, Australia, Europe, Japan, Middle East and the UK● Over 700 employees*● Over £60 billion in assets under management Investec Asset Management OfficesAs at 31 August 2012*Permanent employeesPage 3 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  4. 4. Commodities & Resources Capability● Team: Experienced investment team with fund management, industry and operational, investment banking and commodity research backgrounds● Philosophy: Systematic investment process including two- pronged approach to commodities and resource equities● Investment process: Fundamental commodity market analysis and resources equity research● Comprehensive: Cover all commodities including energy, precious metals, base and bulk metals and mining, agriculture, softs and other commodities● Innovative and flexible: Hold resource equities, commodity ETCs and derivatives● Capability AuM: $5.0 billion invested in commodities and resource equities (as of 31 August 2012)● Wide range of commodity and resource equity solutions, both generalist and specialistPage 4 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  5. 5. Global Commodities and ResourcesCore team Strategy Leaders ● Heritage of investing in Bradley George George Cheveley commodities and resources Portfolio manager & team leader Portfolio manager ● Diverse mix of industry, Investment Specialists investment banking, Dawid Heyl Simon Gardner-Bond commodity and resource Agriculture Base, bulk & precious metals equity research and portfolio Daniel Sacks Scott Winship management SA resources & gold Precious metals ● Mix of skill sets resulting in Tom Nelson* Charles Whall* what we consider to be high Energy Energy quality idea generation Graeme Baker Tom Solomon Energy Investment support analyst ● Average of 12 years experience Team of 2 dedicated traders ● Leverages off the resources of An experienced team with diverse backgrounds the SA Equity investment team*New Joiner from 17 September 2012Source: Investec Asset ManagementPage 5 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  6. 6. Where are we in the commodity cycle?September 2012 levels similar to late 2006 450 400 350 300 250 200 150 100 50 0 Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - Dec - 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 MSCI AC World Energy Index MSCI AC World Materials Index DJUBS TR IndexSource: Bloomberg, 27 September 2012Page 6 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  7. 7. Global commodities and resourcesDivergent commodity returns YTD 2012● Commodities have had a mixed 2012● Global growth concerns due to uncertainty in the euro zone is the main cause● We still believe long term in the structural commodity story● Soft periods like the current one are inevitableSource: Bloomberg as at 9 October 2012. DJ UBS Sub-indices Excess Return except for those marked spotPage 7 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  8. 8. US$/t10719 US$/t 0 0 20 40 60 80 100 120 140 160 200 400 600 800 1,000 1,200 Aug-09 Oct-09 Oct-09 Dec-09 Europe Steel Dec-09 Feb-10 Feb-10 Apr-10 Thermal Coal Apr-10 Jun-10 Jun-10 Aug-10 Source: Bloomberg, MB, SBB Aug-10 Oct-10 Oct-10 Dec-10 Dec-10 Feb-11 Feb-11 Apr-11 Apr-11 Jun-11 Jun-11 Aug-11 EU HR Coil Aug-11 Oct-11 Turkey Rebar Oct-11 Dec-11 Dec-11 Feb-12 Page 8 | Citywire Wealth Manager Retreat | CONFIDENTIAL Feb-12 Apr-12 Apr-12 Jun-12 Jun-12 Aug-12 EU Rebar Aug-12 Oct-12 Oct-12 US$/t US$/t 0 40 80 120 160 200 Iron Ore 0 200 400 600 800 1,000 1,200 Oct-09 Oct-09 Dec-09 Dec-09 Feb-10 Feb-10 Apr-10 Apr-10 US and Asia Steel US HRC Jun-10 Jun-10 US Rebar China HRC China Rebar Aug-10 Aug-10 Iron ore bounces as Chinese steel recovers US No.1 HMS Scrap Oct-10 Oct-10 Dec-10 Dec-10 Feb-11 Feb-11 Apr-11 Apr-11 Jun-11 Jun-11 Aug-11 Aug-11 Oct-11 Oct-11 Dec-11 Dec-11 Feb-12 Feb-12 Apr-12 Apr-12 Jun-12 Jun-12 Aug-12 Aug-12 Oct-12 Oct-12
  9. 9. Chinese infrastructure and construction indicators showing someimprovement Chinese infrastructure investment needs to catch up Positive signals from the Chinese construction sector Source: Macquarie June 2012Page 9 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  10. 10. ..but overall growth has continued to slow as manufacturingsoftens Chinese industrial growth continued to slow End use data are mixed Source: Macquarie June 2012Page 10 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  11. 11. Over 150 million tonnes of iron ore production has costs above$100/t CIF ChinaSupply curve to Chinese market for iron ore finesSource: Macquarie, 2012Page 11 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  12. 12. Long iron ore equities and short US steel equitiesIron Ore equities have underperformed ..but steel equity shorts have provided some protectionSource: Bloomberg, IAM October 11th 2012Page 12 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  13. 13. Platinum market moves back into deficit as supplies are cutPlatinum Supply & Demand Model Platinum supply losses in South Africa000oz 2010 2011 2012F 2013F CAGR CAGR Company Mine Yr Pt Removed Ounces Cut (00-11) (11-13) Impala Strike (Feb/Mar) Impala Lease 2012 150,000Supply Eastern Platinum Mareesburg 2012 20,000South Africa 4,635 4,855 4,317 4,467 2% -4% Aquarius/Anglo Platinum Marikana 2012 60,000Russia 825 835 777 797 -2% -2% Aquarius Everest 2012 50,000North America 210 350 350 350 2% 0% Lonmin Marikana 2012 85,000Zimbabw e 280 340 338 379 14% 6%Others 110 100 100 100 0% 0% Anglo Platinum Rustenburg 2012 67,000Total Producer Supply 6,060 6,480 5,882 6,093 2% -3% Total 432,000DemandAutocatalyst 3,075 3,105 3,107 3,205 5% 2%Chemical 445 470 492 511 4% 4% Lonmin Marikana 2013 50,000Electrical 220 230 246 264 -6% 7% Eastern Platinum Mareesburg 2013 50,000Glass 385 555 562 579 7% 2%Investment 655 460 0 0Jew ellery 2,420 2,480 2,589 2,702 -1% 4% Total 100,000Medical & Biomedical 230 230 232 233 -1% 1%Petroleum 170 210 218 227 6% 4%Other 300 355 367 380 0% 3%Total Gross Dem and 7,900 8,095 7,813 8,101 3% 0%Recycling 1832 2045 1962 1958 8% -2%Autocatalyst 1085 1225 1173 1189 8% -2%Electrical 12 10 12 13 15%Jew ellery 735 810 777 757 8% -3%Total Net Dem and 6,068 6,050 5,851 6,142 0% 1%Surplus / (Deficit) -8 430 31 -49Average Annual Price 1,613 1,758 1,538 1,650Page 13 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  14. 14. 10719 1,000 1,500 2,000 2,500 3,000 3,500 0 500 Twickenham (AMS) Zimplats (IMP) Plat Mile (AQP)* ● Strong rand Mimosa (IMP) Platinum Mimosa (AQP)* RBPlats (RBP)* PPRust (AMS) WLTR (AMS) Two Rivers (ARI)* Implats Group (IMP) Costs to remain high due to: Source: Renaissance Capital, April 2012 Mototolo (XTA)* Impala (IMP) Mototolo (AMS) Tumela A. (AMS) ARM Group (ARI)* Amandelbult (AMS) Page 14 | Citywire Wealth Manager Retreat | CONFIDENTIAL AngloPlat Group (AMS) Aquarius Group (AQP)* Platinum Industry Cost Curve including capex Bathopele R. (AMS) Northam (NHM) ● Uncertain electricity and water supply outlook, Kroondal (AQP)* ● Organised labour demanding real pay increases Union (AMS) Kroondal (AMS) Marikana (LON) Lonmin Group (LON) Modikwa (AMS) Dishaba A. (AMS) Unki (AMS) Siphumele R. (AMS) Marikana (AMS) Pandora (LON) 51% of production is loss making at current prices Xstrata (XTA)* Thembelami R. (AMS) Everest (AQP)* Rustenburg (AMS) Modikwa (ARI)* Khomanani R. (AMS) Marikana (AQP)* Khuseleka R. (AMS) CTRP (AQP)* Eland (XTA)* Marula (IMP) East Plats (EPS)* Bokoni (ARQ)
  15. 15. Long platinum/palladium and short the equityPlatinum PalladiumLonmin has fallen as labour situation worsenedBloomberg, 12 October 2012Page 15 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  16. 16. Crude oil supplyThe futures curve is suggesting something different from fundamentals longer termBrent crude oil price Brent crude oil futures curve 160 115 140 110 120 100 105 $/bbl $/bbl 80 60 100 40 95 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 90 Nov-12 Nov-13 Nov-16 Nov-17 Nov-18 Nov-20 Nov-14 Nov-15 Nov-19 Mar-13 Mar-14 Mar-15 Mar-18 Mar-19 Mar-20 Mar-16 Mar-17 Jul-14 Jul-15 Jul-16 Jul-17 Jul-19 Jul-20 Jul-13 Jul-18Source: Bloomberg, 24 September 2012Page 16 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  17. 17. Crude oilDemand – increasingly a Non-OECD story1. Global demand remains robust 2. Non-OECD set to overtake OECD 60 95 55 90 1.8% Global oil demand (mn bbl/day) 50 CAGR 45 85 mn bbls per day 40 80 35 30 75 25 70 20 Dec 2005 Nov 2003 Dec 2008 Dec 2011 Sep 2004 Sep 2007 Aug 2002 Aug 2010 Jan 2011 Jun 2011 Jan 2003 Jun 2003 May 2006 May 2009 May 2012 Feb 2005 Feb 2008 Mar 2010 Apr 2004 Apr 2007 Jul 2005 Oct 2006 Oct 2009 Jul 2008 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 1997 1999 2001 2003 2005 2007 2009 2011 1996 1998 2000 2002 2004 2006 2008 2010 OECD demand Non-OECD demand3. Strong growth from emerging markets 4. Per capita oil consumption (barrels per year) 32.5 Japan USA South Korea China India 30.0 Oil Consumptio per Capita (Barrels 27.5 25.0 22.5 20.0 17.5 Per Year) 15.0 12.5 10.0 7.5 5.0 2.5 0.0Source: 1. Bloomberg, 2. IEA and Bernstein research, 3. BP, 4. Simmons and Co. – September 2012Page 17 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719
  18. 18. Crude oilSupply – Decline rates of existing oil fields and capex increasing on new fields1. Increasing decline rates 2. The decline in major oil fields is serious● The IEA consensus estimates that global oil 80,000 70,000 production will decline at 2-5% per annum over the 60,000 next decade 000 bbls per day 50,000● IAM forecast declines of over 5% 40,000 30,000 20,000● What consensus appears to be missing… 10,000 − Majority of new fields are deep-water 0 2013E 2014E 2015E 2017E 2018E 2019E 2021E 2012E 2016E 2020E − Increasing unconventional production Incremental demand Incremental decline − Smaller field sizes 3. Rising capital expenditure requirements $800 $120 Global E&P spending (in mn) $100● All these have higher decline rates Inflation Adjusted WTI prices E&P Spending $bn $600 $ per bbl $80 − Over 83% of the world’s major oil fields are past $400 $60 peak production $40 $200 $20 $0 $0 1985 1989 1992 1995 1998 2001 2004 2007 2010Source: 1, 2 IEA and IAM, 3. Barclays E&P survey 2012 – September 2012Page 18 | Citywire Wealth Manager Retreat | CONFIDENTIAL10719

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